Battlers & Billionaires with Marius Benson

Announcer: There were winners and losers when Kevin Rudd announced Labor’s latest ministerial line up yesterday, although mainly winners, as many of the Gillard old guard had already resigned their posts. One loser was Andrew Leigh, who lost his position as a parliamentary secretary. But it’s not likely to be the last that’s heard from the active Andrew Leigh, who was a professor of economics before entering parliament. He’s also the author of several book. The latest, Battlers and Billionaires, looks at a widening economic divide. Andrew Leigh is speaking to Marius Benson.

Marius Benson: Andrew Leigh, you must feel a little disappointed today, you lost the position of parliamentary secretary yesterday, is that just the price you pay for backing the wrong horse in a two horse race?

Andrew Leigh: Well naturally I’m disappointed, but I took the view that after supporting the former Prime Minister that the honourable thing to do was to tell Mr Rudd that while I was willing to serve, I was also willing to stand down if he wanted me to. So he’s asked me to stand down from that role, and to offer him advice on economic issues, which I’m happy to do.

Marius Benson: Ok, if you’re not in that role, you’re busy enough anyway because you are a fairly prolific author. Your latest book is Battlers and Billionaires, and the basic thesis is you see increasing economic inequity in Australia in recent decades.

Andrew Leigh: That’s right. Battlers and Billionaires tells the story of inequality in Australia over the last two and a quarter centuries, going from quite egalitarian beginnings in the end of the 18th century, to a pretty unequal society around the time of World War I. And then we saw a great compression, a period in which Australia became much more equal, right up until the 1970s. And the last generation, as you say, has been a story of increasing inequality. We’ve seen the top 1 per cent double, we’ve seen about $400 billion shifted from the bottom 99 per cent to the top 1 per cent. CEO salaries have gone from an average of $1 million to $3 million in the top hundred firms, and we’ve seen stratospheric increase in consumption in the things the super-rich enjoy, like waterfront homes, Porches, Maseratis, even cocaine.

Marius Benson: Are those statistics, are they arguable? Because I saw Mark Latham, in his quarterly essay a little while back, was talking about Australia certainly doing better than America in terms of equity, but actually doing quite well. The worst off were seeing their income rise at a rate that was at least comparable with other groups of demographics.

Andrew Leigh: It’s certainly true that Australia is a more equal than the United States, but it’s not true that we’ve remained just as equal over the last generation. I’ve got a footnote in the book where I explain the error in using the particular study that Mark place da lot of emphasis on. But really, the picture you get right across a range of studies is of a rising gap between rich and poor over the past generation.

Marius Benson: Well if you look at that past generation, and that rising gap, just looking at it in political terms, during that time, Labor was in power for at least 50 per cent of that time, and Labor is the party of equity. Is that just empty rhetoric?

Andrew Leigh: The sort of factors that drive inequality are very much factors that hit Australia regardless of which party is in power. Technology and globalisation act as a wedge to drive the income distribution apart. We also see significant impacts from tax changes, which Australia implemented largely in order to match other countries and because there was, I think, some recognised economic wisdom that a top tax rate of 70 per cent was too high. We’ve also seen the decline in unions, driven largely by structural change in the economy, rather than by laws affecting unions’ ability to organise. Unions are a powerful equalising force in society, so their decline has been one of the factors that has made Australia more unequal.

Marius Benson: So does government…If Labor hasn’t made any difference, is it largely a powerless observer from the sidelines on these big changes?

Andrew Leigh: No, I think government can play an important role, and I talk in the book about some of the things we can do if we want to ensure that Australia’s strong egalitarian ethos doesn’t get lost. We’re a country where we call one another ‘mate’ and rarely use the word ‘sir’, where tipping is something most of us don’t like, we sit in the front seat of taxis. But if we’re to maintain that I think we need a government that has means-tested social security, that invests disproportionately in improving the education of the most disadvantaged, and which rigorously tests social programs – in my view, using randomised trials, rather than just say-so and ideology.

Marius Benson: If the gap has been widening since the 70s, is there any evidence of any return to equity, any return to that pattern of compression that you saw between the wars?

Andrew Leigh: The last 5 years or so we’re seeing fairly stable inequality in Australia and a large part of that is the global financial crisis, which had big impacts on the top in Australia. But I do worry that we’re getting out of touch with our sort of egalitarian spirit, and I use the analogy in Battlers and Billionaires of AFL and English Premier League. English Premier League is a deathly boring game to watch now, because Manchester United has won 12 of the last 20 seasons. It does that because it’s an incredibly unequal game. In AFL, no team has won more than 3 of the past 20 seasons, and the reason for that is we’ve got a salary cap, we share out the TV royalties, we have a draft system at the end of the season. All egalitarian measures that make the game more interesting, and the question for Australia is whether we want a society that looks more like the English Premier League, or one that looks like the AFL.